Annual UBS investment Lecture. Welcome

Transcription

1 City Guest Wifi password: tglhkjni Annual UBS investment Lecture Thursday 17 November 2016 Welcome

2 Public Economic and Investment Outlook Dean Turner, CFA Economist Chief Investment Office, WM November 2016

3 Global growth set to increase, and so is inflation UBS economic forecasts Source: UBS, as of November

4 What does a Trump presidency mean for markets? Republican majority in both houses of Congress, the President-elect will have some latitude to implement executive decisions that can alter the status quo of US economic and social policy. The promise of an expansionary fiscal policy Tax cuts, tax reform, higher public spending on infrastructure and military The pledge to enact pro-business policies, reducing regulation and the tax burden. Boost economic growth by scrapping intrusive federal regulations, reducing the cost of regulatory compliance, and lowering corporate taxes. The threat to trade and immigration. A tougher negotiating stance with US trading partners. If this translates into policy, it could prove to be a serious economic challenge for Mexico, which relies on the US for 80% of its exports and 98% of the remittances it receives from Mexican workers abroad. Source: UBS as of November

5 Political uncertainty masks pick up in US growth indicators Leading indicators of US manufacturing and non-manufacturing rebounded Source: Thomson Reuters, UBS. Data as of end September

6 and still strong jobs growth underpins consumption Nonfarm payrolls growth slowing, but still strong enough to boost wages and spending Source: Thomson Reuters, UBS. Data as of end September

7 Emerging market economic surprises may have troughed The Citi FX Economic Surprise Index for emerging markets may be turning upward Source: Thomson Reuters, UBS. Data as of 18 October

8 Inflation is rising (even in Europe) as oil prices steady Eurozone headline inflation can rise if oil prices steady or rally further Source: Thomson Reuters, UBS. Data as of end September

9 UK: What has happened to project fear? Business sentiment is responding to referendum result but the consumer doesn t seemed to have noticed yet Source: Haver Analytics, UBS as of September

10 Life likely to get tougher for the UK consumer Real wage growth has been positive for a couple of years the fall in sterling will soon be seen in inflation Source: Haver Analytics, UBS as of September

11 Recession likely to be avoided, but growth outlook is weak Source: Haver Analytics, UBS as of November

12 Brexit: we have date, but little else The political calendar is busy March May Sept/Oct Mar/Apr March May May UK negot iat es it s EU exit UK triggers Article 50 French Presidential election German Federal election Italian general election UK leaves the EU EU parliamentary elections UK general election two year window overlaps many events, and negotiations unlikely to be complete in this time frame. Key thing to watch out for is a transitional agreement from Article 50 to signing of final deal. Source: UBS as of October

13 Brexit means? Control over immigration Single market access EEA (e.g. Norway) Bilateral Agreements (e.g. Switzerland) Customs Union (e.g. Turkey) FTA (e.g. South Africa) World Trade Organisation access Trade tariffs Full access to the single market Yes on goods, unlikely on services Yes on goods, unlikely on services Independent trade agreements Independence from EU regulations Possible, but regulations will have to have equivalence with EU Possible, but regulations will have to have equivalence with EU Control over immigration Possible - depends on agreement Contribution to the EU budget Political and policy influence Consultation - no voting power Source: UBS as of September

14 Where are the opportunities? Trade with the EU is declining, but it is still 44% of total opportunities exist elsewhere, but they will need to see rapid growth Source: ONS Pink Book 2016, UBS as of September

15 UK outside the EU Freedom to set own regulatory standards, but will still be bound by the rules of the markets we wish to trade in. Freedom to negotiate free-trade deals outside of the EU. More nimble decision making to react to global trends. Disruption to foreign direct investment flow, which could require a current account adjustment. Disruption to investment may also be negative for productivity. Greater focus on industrial strategy a necessary rebalancing of activity in the economy. A greater emphasis on regional strategy with further devolution and infrastructure investment. Slightly lower levels of immigration, which will weigh on the potential growth rate of the UK in the years ahead. Fiscal position will remain uncomfortable for the government, which at some point could inhibit government spending and affect potential growth. Source: UBS as of September

16 Overweight US equities as earnings growth resumes After four quarters of flat or falling earnings, 3Q season looks better in the US. Source: FactSet, UBS as of 14 October E indicates CIO estimates. 15

17 Overweight US TIPS* versus high grade inflation up Sustained increases in US inflation have yet to be fully priced in breakeven inflation Source: Bloomberg Finance L.P., UBS. Data as of end September *TIPS = Treasury Inflation Protected Securities 16

18 Cross-asset preferences Source: UBS CIO WM, as of 20 October

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